India’s Bond Yields at One-Month Low on Bets RBI Will Boost Cash

By V. Ramakrishnan -
Dec 5, 2012

India’s 10-year government bonds
gained, pushing the yield to the lowest level in more than a
month, on speculation the central bank will take more steps to
increase cash supply after it resumed buying debt this week.

The Reserve Bank of India bought 116.43 billion rupees
($2.1 billion) of securities due in 2020, 2022 and 2027 at an
open-market auction on Dec. 4, according to the central bank,
the first purchase since June. The RBI may reduce the lenders’
cash-reserve requirement by 50 basis points in the coming
months, along with a 125 basis-point cut in its benchmark
repurchase rate, to spur the economy, according to Credit Suisse
Group AG.

“A 3.75 percent CRR rate would be the lowest India has
witnessed since 1973, reflecting the ongoing liquidity squeeze
in the banking system which is also likely to encourage the RBI
to undertake further sizable open-market operations,” Robert
Prior-Wandesforde, a Singapore-based economist at Credit Suisse
wrote in a research note today.

The yield on the 8.15 percent notes maturing in June 2022
was at 8.167 percent as of 9:24 a.m. in Mumbai, from 8.172
percent yesterday, according to the central bank’s trading
system. That was the lowest since Oct. 29.

Gross domestic product rose 5.3 percent in the July-
September quarter, government data show, matching the slowest
pace since 2009.

The central bank has bought 936.43 billion rupees of
securities so far in the fiscal year that began April 1 to boost
the availability of funds in the financial system.

Lenders borrowed an average of 928 billion rupees a day
from the RBI’s repurchase window in November, compared with 671
billion rupees the previous month, according to data compiled by
Bloomberg. They borrowed 796 billion rupees yesterday.

The one-year interest-rate swap, a derivative contract used
to guard against fluctuations in funding costs, fell two basis
points to 7.73 percent, data compiled by Bloomberg show.